Palm Beach Corporation Has a Stock Option Plan for Its

question 3

Essay

Palm Beach Corporation has a stock option plan for its continuing employees that provides that each qualified employee may receive an option for a specified number of shares of the company's $1 par value stock.Employees must continue working for the company for three years to earn the grants,which may be exercised any time after the three years,at an option price of $10 per share.On January 1,2014,employees were granted options for 3,000 shares when the market price was $16 per share.The fair value of the options was $24 each.The expected annual forfeiture rate is 5%.The accounting period ends December 31.Palm Beach uses SFAS No.123R in accounting for these options.Assume that the estimated and actual forfeiture rates are equal.
Required:
1.Prepare the entry required for these options at December 31,2014.Ignore income tax effects.
2.Prepare the entry required to reflect the exercise of one-half of the options on December 31,2017,when the market price was $30 per share.Ignore income tax effects.

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